The price-to-book (P/B) ratio is a crucial metric in value investing, offering insights into whether a stock is undervalued or overvalued compared to its book value. The book value represents a company's net asset value, calculated as total assets minus liabilities. The P/B ratio compares the market price of a stock to its book value per share, helping investors assess the market's valuation of the company relative to its actual net assets.

A P/B ratio of less than 1 suggests that the stock is trading for less than the company’s book value, potentially indicating an undervalued stock. Value investors often seek out such opportunities, as they may represent companies with solid fundamentals that are temporarily overlooked or undervalued by the market.

However, a low P/B ratio alone isn't a guarantee of a good investment. It’s essential to consider the company’s overall financial health, growth prospects, and the reasons behind the low valuation. For example, a low P/B ratio could signal underlying issues like declining profitability or poor management.

In contrast, a high P/B ratio might indicate that a stock is overvalued, as investors are willing to pay more than the company’s book value, often due to growth expectations. Therefore, the P/B ratio is a valuable tool in assessing a company's valuation in the context of value investing.